Youth Unemployment: Clegg Announces £1bn Fund - But Who Will Pay For It?

Nick Clegg has announced the creation of a £1bn "Youth Contract" to create hundreds of thousands of work placements for young people in a bid to tackle the growing cohort of 16 to 24-year olds out of work and education. The move comes a day after figures from the Department for Education showed that a record number of youth are not in education, employment or training (Neet).

While business leaders tentatively welcomed the deal, Labour have raised questions over how the programme will be funded. One suggestion is to use a cut to working family tax credits to pay for the scheme, which could create social problems elsewhere. Labour immediately raised concerns.

"It is a national tragedy that this government left young people desperate for work on their own with no real help for 18 months. The Tories killed the Future Jobs Fund and young people have paid a brutal price for this, with youth unemployment hitting a million and long term youth unemployment up 83 per cent this year," Liam Byrne, Labour's shadow work and pensions secretary said on Thursday night.

“And if the government is slashing working families tax credits to pay the bill for this new scheme, it beggars belief. That tells you everything you need to know about how out of touch the Government is with the needs of our young people and squeezed middle families across Britain."

Labour's proposal for a job creation scheme suggests using a tax on bank bonuses to finance initiatives to bring young people into the workforce.

"That's a feature of the kind of ad hoc, unconnected nature of this announcement," Chris Goulden, policy and research manager at the Joseph Rowntree Foundation said. "If it does come from working tax credits then it does cause problems elsewhere."

There is a wider issue around the coherence of the government's strategy on employment, poverty and social mobility, which is possibly a symptom of the different ideologies forced together under the coalition, Goulden said. "It's a bit of a worry that the silo mentality, and retreating into interdepartmental wars, is coming back under the coalition.

"There is an issue about how all these things are joined up, because it does seem to be a rather reactive and ad hoc strategy. We've known about youth unemployment for ages. Young people's unemployment started going up in 2004, before the recession."

More than a million 16-24 year olds are now Neet, the worst since records began in the 1990s. Youth employment programmes, such as the Future Jobs Fund, and incentives for young people to stay in higher education, such as the Education Maintenance Allowance (EMA), were cut as part of the coalition's attempts to cut the budget deficit, and although rising youth unemployment is a trend that predates the current government and the economic downturn, analysts and charities have criticised the absence of specific initiatives for young people.

Apprenticeships have been at the forefront of the coalition's drive to get young people into the workforce, with many citing a lack of skills and practical training as a leading cause of rising youth unemployment. However, while apprenticeships have been created, research from the Institute for Public Policy Research (IPPR) showed that many had gone to over-25s. Out of 126,000 new apprenticeships last year, only 37,000 were filled by 16-24 year olds, IPPR said.

Clegg said that the youth contract scheme would create work experience opportunities for 410,000 young people, as well as wage subsidies of £2,275 for employers to hire 160,000 young people. The subsidy, which lasts for six months, are equivalent to half the youth minimum wage.

The Confederation of British Industries (CBI) has been lobbying for the creation of a £1,500 credit for firms that take on 16-24-year old. CBI director-general John Cridland said on Friday that the youth contract "will encourage firms to take a gamble on a young inexperienced person and help tackle the scourge of youth unemployment."